North America Structured Finance Issue: Coinstar's US$900m WBS

IFR Review of the Year 2017
3 min read
Natalie Harrison

Change for the better

Whole-business securitisations made a splash in the United States in 2017, and no company did it better than coin collecting company Coinstar.

The business model could not be simpler. You dump your loose change into a Coinstar machine, and get cash or a spendable voucher from your pennies and quarters. The company takes an 11.9% cut for the cash option.

Coinstar machines, based in popular shopping spots such as Walmart, have processed a whopping US$46.5bn of coins in the past 25 years.

Cory Wishengrad, head of structured products origination at Guggenheim Securities – the sole lead on the deal – said he had been looking at Coinstar as a likely WBS candidate for years.

When it was part of a public company called Outerwall, Wishengrad said, he had envisaged a whole-business deal – but didn’t believe it was quite the right fit at the time.

“Redbox was a much bigger part of Outerwall,” he said, referring to the ubiquitous DVD vending machines. “Securitising just Coinstar wasn’t sufficient to capitalise the entire company.”

But after the 2016 buyout by private equity firm Apollo Global Management, the situation changed.

Apollo wanted to separate Redbox and Coinstar, and did so by financing the take-private in the most efficient way – with two separate leveraged-loan transactions.

Coinstar’s financing comprised a US$560m first-lien seven-year loan, which was priced at 425bp over Libor, and a US$135m eight-year second-lien term loan that was priced at 875bp over.

Once that was done and dusted, Apollo started to think about a WBS to lower the borrowing costs.

“It was a totally new industry for this asset,” said Reed Rayman, an Apollo principal. “We really didn’t know if we would even get the ratings we wanted.”

But it did get those ratings. Kroll and Morningstar put the company in investment-grade (Triple B) and Apollo then started the internal system changes needed to make a deal work.

In the end, it came up with a US$900m WBS transaction.

That took out the loans, paid Apollo a dividend and created a portable debt structure that will potentially make it easier to sell the business later on.

“A buyer would just have to provide the equity,” said Mike Konigsberg, head of capital markets at Apollo.

The 5.8-year Triple B rated US$840m bonds crossed the line at a 5.25% yield, while a US$60m tranche was retained.

Apollo’s annual interest costs fell from US$50m to US$45m, according to Rayman.

Investors also got a good deal. The bonds were trading in mid-November at a cash price of 104 and a yield of 4.4%.

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